economics essay

Global Trade And Development Economics Essay

Published: 23, March 2015

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Trade plays a key role in every economy, especially in the interconnected and interdependent world. To exist and develop, the countries, rich and poor, depend on one another. In the past 40 years, the US national trade has grown up very fast. This country has bought more low-cost goods from abroad and poor countries which are becoming richer and richer and more connected to the global world buy more American goods. As a result of this, about 45% of American exports go to developing countries today.

Although trade is a potential force for reducing global poverty by creating more jobs for people, control the increase of prices and inflation rate, encouraging the variety of goods for consumers and helping countries to acquire new technology ..., it has different influence on each country. For instance, Mexico would have had 40% less foreign direct investment and its export would have been 25% lower if there had been no North American Free Trade Agreement (NAFTA). However, there has been an unbalance between jobs in Mexico. NAFTA creates more manufacturing jobs and more jobs in the service industry but fewer agricultural jobs. This shows that trade agreement is not a simple solution for development and getting rid of trade barriers can create both victory and loss.

The US has three kinds of agreement - bilateral agreement (agreement between two nations), regional agreement and multilateral agreement (agreement among many nations). Of the three, multilateral agreement has a great influence on the global development because it give a lot of opportunities for poor countries to join together, co-exist and co-develop and reduce the world's poverty. The US Trade policies also have a negative effect on other countries. They create trade barriers against imports made in poor countries, especially goods such as textiles, footwear and agricultural goods

The US often collects more in tariffs on goods from poor countries than from rich countries as it used to be but they require high quality processed goods, which makes poor countries get into difficult situations of increasing income by producing and selling higher value goods.

In a word, it's important for the US to have trade policies that better support global development, especially poor and developing countries.

Question 2: Did NAFTA help the people in Mexico?

Answer:

NAFTA stands for North American Free Trade Agreement, which governs trade between the US, Canada and Mexico. NAFTA had both positive and negative effect for the people in Mexico

Without NAFTA, Mexico would have fewer jobs and 4%-5% lower of average personal income in 2002 because Mexico would have had approximately 40% less direct investment from foreign countries and its exports would also have been 25% lower. Therefore, it is not so difficult to see the positive effect of NAFTA in this case.

On the other hand, if the demand is not growing, the supply of jobs in Mexico cannot keep pace while obviously NAFTA has not been able to ensure whether the demand is growing. From the influence of NAFTA in 1994, Mexico has seen an increase of 500,000 manufacturing jobs but there is a loss of 1.3 million in agricultural jobs. Although number of jobs in service sector has increased but almost of them have been low-pay and low-productivity.

In conclusion, in some points of view, NAFTA can help Mexico to provide more jobs but it also removes trade barriers, hence, it can create both winners and losers.

Question 3: Do US tariffs cause greater harm in other rich countries or in poor ones?

Answer:

Tariffs are barriers which the US made through the taxes on import goods from other countries. The imported goods which have highest tariffs are goods which account for almost the capacity of poor countries such as: Agricultural goods, textile, footwearâ€¦ Thus, the US tariffs have more negative impacts on the poor countries than rich countries. All the below reasons will be rendered to illustrate that conclusion:

Firstly, tariffs on imported goods are collected more from poor countries than rich countries, for example, in 2001, tariffs are collected from France and Norway are 359 and 22 million dollars, however, tariffs which are collected from Indonesia and India are much higher than those from France and Norway, equivalent to 656 and 652 million dollars.

Moreover, almost poor countries export raw materials such as cocoa and cotton, thus, the value of goods are not as high as processed materials. In contrast, the US collects higher tariffs on processed materials than raw materials. It is the obstacle that makes poor countries export goods with lower value.

In conclusion, it is thought that if US removes the barriers to imports from poor countries, more and more people will have more income and better life.

Question 4: Who gets more from rich country governments: rich country farmers or poor countries?

Answer:

The implication of the article is that not only the U.S. but also other rich countries give supports to domestic agriculture producers through tariffs, quotas and subsidies.

Goods that import to rich countries from poor countries often suffer high taxes (tariffs) and limitation in the amount (quotas). Eventually, tariffs on goods imported from poor countries are much higher than tariffs on the same goods from rich countries. One of the objectives of these barriers is to protect producers in rich countries because tariffs and quotas usually cause prices increase. Consequently, quantity of goods imported to the US market decreases significantly.

Moreover, rich countries tend to subsidize heavily their agricultural sector. With assistance from government, rich country farmers can sell their goods at price that is lower than it costs to produce them. This is really a big barrier for poor countries to compete in world markets with cheaper agricultural products from rich countries.

From tariffs, quotas and subsidies policy of rich countries, it is clear that rich country agricultural producers get more from rich country government in comparison to poor countries. In other word, poor countries are very difficult in competing with rich country farmers in world markets.

Question 1: What parts of the world have risen from poverty through international trade?

Answer:

Many countries in the world, rich or poor, more or less, benefit from the international trade. In Asia, take China into account. In 1990, a per capital gross domestic product was less than $400 and 38 out of every 1,000 babies died before they were born. By the year 2006, the GDP was three times more than that in 1990 and the number of infants who died before birth went down to 23 out of 1,000. China is a vast country and according to the World Bank, reducing the poverty in China means reducing over 75% of the poverty in the entire developing world.

In Latin America, thanks to the North American Free Trade Agreement and the expansion of trade with South America in the 1990s, Latin America's universal primary education has been improved a lot and the child's death rates have been cut by nearly half.

The story is the same for many other parts of the world. However, there are still some countries, especially in Africa, which are not influenced by the international trade and the poverty here represented 15% of the world in 1970 and today 68%.

Question 2: What part of the world has "languished," and why, according to the author.

Answer:

According to the author, sub-Saharan Africa has "languished". Since 1980, trade of sub-Saharan Africa such as percentage of GDP has stayed unchanged. Africa represented 15% of the world's poor in 1970 and still contains 68% today.

Question 3: What indicators, besides per capita income, does the author use to show progress?

Answer:

Progress is used to show the better things through a process. In the article, besides per capital income, the author uses some other factors in some areas around the world to indicate the progress such as:

In China, average income ($1200) had more tripled compared with this in 1990($400). Besides that, the progress is showed through the rate of babies who died within one year old. This rate has fallen from 0.038% in 1990 to 0.023% in 2006. According to the valuation of World Bank, China made up over 75% of poverty reduction in the total developing countries thanks to international trade. Furthermore, the large value of exported goods creates much more jobs for Chinese and makes their life better.

Another good example is Latin America, the second example to show the progress through international trade. Like China, Latin America cut the child mortality rate by nearly half and they can nearly meet the U.N. Millennium Development Goal of universal primary education. It is easy to explain that, when people have better income, they will have more opportunities to take care health and education. Two major factors are also used to evaluate the progress of any society.

Overall, there are a number of factors to show the progress. In this article, the author indicated some among those factors such as average income, education, healthâ€¦.

Question 1: What percentage of those in the U.S. who involuntarily lose their jobs each year do the authors estimate are due to offshoring?

Answer:

America is worried about off shoring - not only in manufacture but also in service industry. There is no doubt that offshoring provides overall economic gains but it is also redistributive and workers who have been affected by this take risks of job loss, wage pressures and health care. Even worse, some workers fall down the economic ladder when they have no choice have to take new jobs at lower pay and thus face the prospect of lower lifetime earnings. Stephen Roach of Morgan Stanley estimates that the current "jobless" recovery is short 2.4 million jobs compared with the previous "jobless" recovery of the early 1990s, and Laura Tyson, dean of the London Business School, estimates that even those Americans who have jobs are short about $350 billion in "missing income."

Many countries now employ labor from low - wage countries. As a result, many jobs have been moved offshore in the recent past and this will increase in the future. In the past three years, there have been half a million layoffs due to offshoring. Take Forrester as an example. Forrester is an information technology consulting firm which expects the number of the US jobs moving offshore growing from 400,000 in 2004 to 3.3 million by 2015. If this estimate comes true and accurate, then there will be roughly 15 million Americans who lose their jobs every year. The foreign outsourcing total is becoming powerful to the workers who have lost their jobs and those who worry that they will lose their jobs. Consequently, there will be a risk that some American workers, companies and possibly communities will lose out in the process. Because of the competitive pressures to reduce costs and displacement of existing jobs, offshoring is related to technological advance which has been a feature of US economy since its existence. A recent study by a consulting firm estimates that the net cost saving of moving some jobs offshore is about 50%. This is much lower than the wage differential between US and foreign workers, which is sometimes up from 80% to 90 % due to costs incurred for coordination and telecommunications. In turn, there will be lower inflation and higher productivity which allows the Federal Reserve to have a more suitable monetary policy. As a result of this, in terms of overall and overtime, the economy will grow faster and create the conditions for higher overall employment.

Question 2: What are the two major effects of offshoring, according to economic theory?

Answer:

According to the economic theory, offshoring has two major impacts to the U.S. economy which are more economic gains and the lost in the process of some American workers, companies and possibly communities.

By offshoring some steps of the whole manufacturing process, firms can produce the goods with lower costs and prices. A recent study by the consulting firm McKinsey and Company estimates that the net cost savings of moving some jobs offshore is about 50 percent which is far lower than the wage differential between U.S. and foreign workers, sometimes this difference runs from 80 percent to 90 percent because of costs incurred for coordination and telecommunications. In turn, lower inflation and higher productivity allow the Federal Reserve to run a more accommodative monetary policy which means that the economy will grow faster, creating the conditions for higher overall employment.

On the other hand, if fewer people are needed in existing jobs and occupations, then what happen with total employment? Won't it total fall over time? In the past, the number of jobs has closely followed the growth of the labor force, despite major increases in foreign trade and the advent of a host of new job-displacing technologies, such as voicemail, word processors, and optical scanners. Indeed, despite a surge in openness, the U.S. economy since 1985 has added 30 million workers to its payrolls, even taking into account the recent recession and the unusually low job creation during the recovery. At the same time, median family income has increased 20 percent. Structural changes, including trade and technology, influence where the jobs are, not the total number of jobs.

In conclusion, offshoring, like trade and technology, is a process of creative destruction whereby workers in affected industries face the very real possibility of losing not only their jobs but also their health care. Even worse, some workers fall down the economic ladder when they have no choice but to take new jobs at lower pay and thus face the prospect of lower lifetime earnings.

Question 3: What policies do the authors recommend for responding to increase in offshoring?

Answer:

Offshoring is the movement of some or all of a firm's activities to the places outside home country. The author recommended the policy agenda with five important steps as below:

Firstly, improving the data which the government collects, policymakers use the data on offshoring to improve the statistics so that they can make the decisions sooner.

Secondly, ensuring that America remains the most attractive location in the world for high-value services and manufacturing, policymakers should pay attention to distortion in the tax code which artificially improves offshoring.

Thirdly, giving the American workers the knowledge and skills they need to compete in the global economy. All citizens must be cultivated knowledge and skill even from kindergarten in order to make strong workforce in the future.

Fourthly, paying attention to legitimate regulatory issues. When services are produced in foreign countries with different laws and regulations, so policymakers must understand deeply to protect consumers and consumers have rights to know that.

Finally, finding the difficulties which workers faced in the services sector through wage insurance, adjustment assistance and training. This may be the most priority which Congress needs to do.

In conclusion, the author rendered some policies to increase in offshoring. Moreover, in order to implement those policies, it is necessary to pass step by step.

Question 1: What is it that the author says makes anti-dumping laws a "practical necessity"?

Answer:

In the late 1980s and early 1990s, foreign governments, foreign companies, and their lawyers and lobbyists in Washington demanded that anti-dumping laws should be put under the control of the world trading system when the Uruguay Round of trade negotiations created a complex series of international rules on anti-dumping. Now, although some of those hard-fought rules have even been tested, there are still a lot of restrictions. A number of countries, including Japan, Korea, and Brazil, have called for new World Trade Organization negotiations to curb anti-dumping laws and make dumping possible and anti-dumping laws a practical necessity in largely open and competitive markets, like the United States. However, these negotiations led to dozens of new limitations on anti-dumping and countervailing duty laws. Critics say that the standards for any anti-dumping duties are too weak. There is no need to see if current standards effectively police unfair trade practices because they believe any policing is too much. In reality, critics of anti-dumping laws -- domestically and internationally - would rather seek a de facto ban on anti-dumping and countervailing duty actions and an international license to dump and subsidize than a reasonable standard for policing unfair trade practices.

Let's pay careful attention to the policies of the countries seeking further limitations to understand the core issues behind these demands for new limits on anti-dumping laws through a few of following facts.

Market shares of Japanese companies are unchanging due to the Japanese steel cartel which limits steel imports, limits domestic competition and maintains domestic steel prices often hundreds of dollars per ton over the export price.

Korea's protectionism and anti-import campaigns across its economy has subsidized its semiconductor, automobile, and steel industries to the tune of billions of dollars.

Brazil has followed a similar path; simply put, without heavy government subsidies over an extended period to have a steel industry to "privatize" today.

We hope that a long series of bilateral and multilateral trade negotiations with all of these countries has partly put away some of these trade barriers and curbed the trade distorting policies. The impact of past policies and their current operation continue to affect markets.

In the upcoming round of trade negotiations, if anti-dumping laws are taken account into consideration, the topic should be toughening anti-dumping laws to attack those companies that repeatedly dump, increase dumping margins to blunt anti-dumping duties, or seek to circumvent anti-dumping orders.

Question 2: In what countries and products does the author see these problems as being most severe?

Answer:

Countries that the author sees the problem are Japan, Korea and Brazil in the industries of steel, semiconductors, supercomputers and automobile.

Firstly, Japanese Government issues strict policy to limit steel imports which also means limit domestic competition to protect the market shares of Japanese companies. Consequently, domestic steel prices still keeps hundreds of dollars per ton over the export price.

Not only protecting the domestic steel industry, at the same time, Japanese practices have been common on other products, such as semiconductors and supercomputers, on which U.S. anti-dumping actions have been made.

Secondly, Korea is another country which has a long history of protectionism and anti-import campaigns across its economy. Korea also has subsidized its semiconductor, automobile, and steel industries to the tune of billions of dollars.

Lastly, Brazil has followed a similar path to protect its steel industry. Without heavy government subsidies over an extended period it is unlikely that Brazil would have much of a steel industry to "privatize" today.

Question 3: According to the author, did the Uruguay Round agreements make anti-dumping laws harder or easier to use?

Answer:

According to the author's opinion, the Uruguay Round agreements make anti-dumping laws harder to use. Many negotiations in the Uruguay Round lead to the new limitations on anti-dumping.

The most important of these limitations are new standing orders which increase the dumping level. It is very essential to pay careful attention to the policies of countries which are finding further limitations, thus, it is necessary to understand the core issues behind these orders for new limitation on anti-dumping laws. The author indicated some good examples to illustrate this as below:

Firstly, Japanese government have policy to limit steel imports, limit domestic competition which has main purpose to keep market shares of Japanese firms stable and control the domestic steel prices compared with the export price.

Secondly, U.S. has made anti-dumping actions with products such as: semiconductors and supercomputers.

Next, Korea has also had policies to limit imports by subsidizing its semiconductor, automobile, and steel industries.

Especially, if without government subsidies for an extended period, it is impossible for Brazil to control a strong steel industry as today.

In conclusion, anti-dumping laws continue to be discussed which the main topics are to attack the firms that repeatedly dump, increase dumping margins to reduce anti-dumping duties or try to breakdown the anti-dumping orders.

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